Dapper Labs Settles Class Action Securities Suit for $4M

The settlement must still be approved by a New York court.

NFT Company Dapper Labs Settles Class Action Securities Suit for $4M

Non-fungible token (NFT) company Dapper Labs has agreed to pay $4 million to settle a class action lawsuit that alleged the company violated federal securities laws with its flagship product, NBA Top Shot Moments.

The settlement, which still needs to be approved by a New York court, would end a nearly three-year legal battle between Dapper Labs and a group of investors.

The plaintiffs in the suit claimed that Moments NFTs were unregistered securities because their value increased with the popularity of the project as a whole. They also alleged that Dapper Labs prevented investors from cashing out for “months on end” to keep value locked on the platform, and did not allow Moments to be bought or sold on outside NFT platforms at the time the suit was filed.

Dapper Labs' lawyers have maintained that their NFTs are not securities, arguing that they were essentially digital basketball cards in court filings.

Under the terms of the settlement agreement, which was filed on Monday, the plaintiffs will be barred from claiming that their NFTs are securities, in exchange for an aggregate settlement fund of $4 million. The money will go towards payments to the class members, attorneys’ fees and settlement administrator costs, according to Dapper Labs co-founder and CEO Roham Gharegozlou.

Dapper Labs also agreed to other business changes to settle the suit, according to a representative for the company. These include the implementation of mandatory employee training programs focused on “compliance with federal securities laws and ethical marketing practices” and increased payment and withdrawal speeds.

Additionally, Dapper Labs promised to relinquish any control over its remaining FLOW tokens to the Flow Foundation, a move that is meant to ensure the decentralization of the Flow ecosystem.

While the proposed settlement is between Dapper Labs and investors, not regulators, Gharegozlou told CoinDesk the agreement was a “great start” towards increased legal clarity on whether the company's NFTs can be classified as securities.

“We are continuing to push for more overarching regulatory clarity to showcase that consumer NFTs are not financial products and, as such, should be regulated under well-established consumer protection regimes at the state level,” Gharegozlou said. “This includes pushing for legislation at the federal level that makes it clear that consumer product NFTs, such as NBA Top Shot, are not subject to federal financial regulation.”

Gharegozlou added that the company is “not aware of any regulator” like the U.S. Securities and Exchange Commission (SEC) claiming that Moments NFTs are securities. In April, Fortune reported that the SEC had at one time launched an investigation into Dapper Labs but closed it in September 2023.